LHC GROUP, INC. CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain statements, including the potential future impact of COVID-19 on our results of operations and liquidity, the potential impact of actions we have taken to mitigate the impact of COVID-19, the potential impact on supply chain disruptions and increased costs associated with obtaining personal protective equipment, the expected benefit of the CARES Act on our liquidity, and information that may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements relate to future plans and strategies, anticipated events or trends, future financial performance, and expectations and beliefs concerning matters that are not historical facts or that necessarily depend upon future events. The words "may," "should," "could," "would," "expect," "plan," "intend," "anticipate," "believe," "estimate," "project," "predict," "potential," and similar expressions are intended to identify forward-looking statements. Specifically, this report contains, among others, forward-looking statements about:
•our expectations regarding financial condition or results of operations for
periods after
•our critical accounting policies;
•our business strategies and our ability to grow our business;
•our participation in the Medicare and Medicaid programs;
•the reimbursement levels of Medicare and other third-party payors, including changes in reimbursement resulting from regulatory changes;
•the prompt receipt of payments from Medicare and other third-party payors;
•our future sources of and needs for liquidity and capital resources;
•the effect of any regulatory changes or anticipated regulatory changes;
•the effect of any changes in market rates on our operations and cash flows;
•our ability to obtain financing;
•our ability to make payments as they become due;
•the outcomes of various routine and non-routine governmental reviews, audits and investigations;
•our expansion strategy, the successful integration of recent acquisitions and, if necessary, the ability to relocate or restructure our current facilities;
•the value of our proprietary technology;
•the impact of legal proceedings;
•our insurance coverage;
•our competitors and our competitive advantages;
•our ability to attract and retain valuable employees;
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•the price of our stock;
•our compliance with environmental, health and safety laws and regulations;
•our compliance with health care laws and regulations;
•our compliance with
•the impact of federal and state government regulation on our business; and
•the impact of changes in future interpretations of fraud, anti-kickback, or other laws.
The forward-looking statements included in this report reflect our current views about future events, are based on assumptions, and are subject to known and unknown risks and uncertainties. Many important factors could cause actual results or achievements to differ materially from any future results or achievements expressed in or implied by our forward-looking statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict. Important factors that could cause actual results or achievements to differ materially from the results or achievements reflected in our forward-looking statements include, among other things, the factors discussed in the Part II, Item 1A. "Risk Factors," included in this report and in our other filings with theSEC , including our 2021 Form 10-K, as updated by our subsequent filings with theSEC . This report should be read in conjunction with the 2021 Form 10-K and Form 10-K Amendment, and all of our other filings made with theSEC through the date of this report, including quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this report reflect our views and assumptions only as of the date this report is filed with theSEC . Except as required by law, we assume no responsibility for updating any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should read this report, the information incorporated by reference into this report, and the documents filed as exhibits to this report completely and with the understanding that our actual future results or achievements may differ materially from what we expect or anticipate.
Unless the context otherwise requires, "we," "us," "our," and the "Company"
refer to
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Table of Contents OVERVIEW General We provide quality, cost-effective post-acute health care services to our patients. As ofJune 30, 2022 , we have 953 service providers in 37 states within the continentalUnited States and theDistrict of Columbia . Our services are classified into five segments: (1) home health services, (2) hospice services, (3) home and community-based services, (4) facility-based services primarily offered through our long-term acute care hospitals ("LTACHs"), and (5) healthcare innovations services ("HCI"). We intend to increase the number of service providers within each of our segments that we operate through continued acquisitions, joint ventures, and organic development. Our home health service locations offer a wide range of services, including skilled nursing, medically-oriented social services, and physical, occupational, and speech therapy. As ofJune 30, 2022 , we operated 543 home health services locations, of which 333 are wholly-owned, 206 are majority-owned through equity joint ventures, two are under license lease arrangements, and the operations of the remaining two locations are only managed by us. Our hospices provide end-of-life care to patients with terminal illnesses through interdisciplinary teams of physicians, nurses, home health aides, counselors, and volunteers. We offer a wide range of services, including pain and symptom management, emotional and spiritual support, inpatient and respite care, homemaker services, and counseling. As ofJune 30, 2022 , we operated 169 hospice locations, of which 103 are wholly-owned, 64 are majority-owned through equity joint ventures, and two are under license lease arrangements. Through our home and community-based services segment, services are performed by skilled nursing and paraprofessional personnel, and include assistance with activities of daily living to the elderly, chronically ill, and disabled patients. As ofJune 30, 2022 , we operated 135 home and community-based services locations, of which 121 are wholly-owned and 14 are majority-owned through equity joint ventures. We provide facility-based services principally through our LTACHs. As ofJune 30, 2022 , we operated 11 LTACHs with 12 locations, all but three of which are located within host hospitals. We also operate two skilled nursing facilities, a family health center, two rural health clinics, and 75 therapy clinics. Of these 92 facility-based services locations, 81 are wholly-owned, and 11 are majority-owned through equity joint ventures. Our HCI segment reports on our developmental activities outside its other business segments. The HCI segment includes (a)Imperium Health Management, LLC , an ACO enablement company, (b)Long Term Solutions, Inc. , an in-home assessment company serving the long-term care insurance industry, and (c) certain assets operated by Advanced Care House Calls, which provides primary medical care for patients with chronic and acute illnesses who have difficulty traveling to a doctor's office. These activities are intended ultimately, whether directly or indirectly, to benefit our patients and/or payors through the enhanced provision of services in our other segments. The activities all share a common goal of improving patient experiences and quality outcomes, while lowering costs. They include, but are not limited to, items such as: technology, information, population health management, risk-sharing, care-coordination and transitions, clinical advancements, enhanced patient engagement and informed clinical decision and technology enabled in-home clinical assessments. We have 14 HCI locations, of which 13 are wholly-owned and one is majority-owned through an equity joint venture.The Joint Commission is a nationwide commission that establishes standards relating to the physical plant, administration, quality of patient care, and operation of medical staffs of health care organizations. Currently, Joint Commission accreditation of home nursing and hospice agencies is voluntary. However, some managed care organizations use Joint Commission accreditation as a credentialing standard for regional and state contracts. As ofJune 30, 2022 , the Joint Commission had accredited 523 of our 543 home health services locations and 111 of our 169 hospice agencies. Those not yet accredited are working towards achieving this accreditation. As we acquire companies, we apply for accreditation 12 to 18 months after completing the acquisition.
The percentage of net service revenue contributed from each reporting segment
for the three and six months ended
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Three months ended June 30, Six months ended
June 30,
Reporting segment 2022 2021 2022 2021
Home health services 68.2 % 72.6 % 68.0 % 72.0 %
Hospice services 17.8 11.7 17.8 11.8
Home and community-based services 7.8 8.9 7.8 9.1
Facility-based services 5.3 5.7 5.5 6.0
HCI 0.9 1.1 0.9 1.1
100.0 % 100.0 % 100.0 % 100.0 %
Recent Developments
The reader is encouraged to review our detailed discussion of health care
legislation and Medicare regulations in the similarly titled section in Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," along with the discussions in Part I, Item 1, "Business;
Government Regulation" and in Part I, Item 1A, "Risk Factors" in our 2021 Form
10-K.
Coronavirus and Coronavirus Aid, Relief, and Economic Security Act
The following portions of the CARES Act impacted us during the six months ended
•CAAP: CMS recouped$98.3 million of CAAP. As ofJune 30, 2022 ,$8.2 million of contract liabilities - deferred revenue remains on our condensed consolidated balance sheets. •Suspension of the 2% sequestration payment adjustment: During the three and six months endedJune 30, 2022 , we recognized$3.4 million and$10.0 million of net service revenue, respectively, due to the suspension of the 2% sequestration payment adjustment. We recognized$6.4 million and$12.9 million of net service revenue, respectively, during the three and six months endedJune 30, 2021 . •Waiver of the application of site-neutral payment: Under Section 1886(m)(6)(A)(i) of the Act, the claims processing systems was updated to pay all LTACH cases admitted during the COVID-19 PHE period at the LTACH-PPS standard federal rate, effective for claims with an admission date occurring on or afterJanuary 27, 2020 through the end of the PHE period. During the three and six months endedJune 30, 2022 , we recognized$5.6 million and$12.2 million of net service revenue, respectively, due to the suspension of LTACH site-neutral payments. We recognized$6.9 million and$12.5 million of net service revenue, respectively, during the three and six months endedJune 30, 2021 . During the three and six months endedJune 30, 2022 , we did experience higher costs related to higher contract labor utilization due to an increase in our clinicians being on quarantine from COVID-19 exposure or potential exposure. There is no guarantee that we won't experience similar impacts in the future or experience a decrease in demand for our services as a result of COVID-19. The rapid development and fluidity of this situation makes it difficult to predict the ultimate impact of COVID-19 on our business and operations. Nevertheless, COVID-19 presents a material uncertainty which could materially impact our business and results of operations in the future.
OnJune 17, 2022 , CMS released the proposed rule for fiscal year 2023. The proposed rule states the Medicare base payments would decrease by 4.2%. The decrease reflects the effects of a proposed 2.9% home health payment update, a 6.9% decrease from the effects of the proposed prospective, permanent behavioral assumption adjustment of 7.69%, and 0.2% decrease to the fixed-dollar loss ratio used in determining outlier payments. The proposed prospective, permanent behavior assumption adjustment to the home health 30-day period payment rate is to account for any increases or decreases in the aggregate expenditures as a result of the difference between assumed behavior changes and actual behavior changes due to the implementation of the PDGM and 30-day unit of payment. CMS is also proposing a permanent 5% cap on negative wage index changes regardless of the underlying reason for the decrease. CMS is proposing to require home health agencies to submit all-payer OASIS data for purposes of the Home Health Quality Reporting Program, beginning with the calendar year 2025 program year. For the Expanded Home Health Value-Based Purchasing Model, CMS is proposing to change the Model and home health agencies baseline years. Hospice 28
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On
•A payment rate increase of 3.8%, which applies a 4.1% market basket update and a 0.3 percentage point reduction for productivity.
•Hospice agencies that fail to meet quality reporting requirements will receive a two percentage point reduction to the annual market basket update.
•An increase of the aggregate cap value of
•A permanent cap on negative wage index changes greater than a 5% decrease from the prior year, regardless of the underlying reason for the decrease.
The following are the final fiscal year 2023 base payment rates for various levels of care, which will begin onOctober 1, 2022 and will endSeptember 30, 2023 and the final fiscal year 2022 base payment rates for various levels of care, which began onOctober 1, 2021 and will endSeptember 30, 2022 (payment rates for hospice providers not complying with the hospice quality reporting requirements will be 2% lower than the values referenced below): Final Fiscal Year 2023 Fiscal Year 2022 Description Rate per patient day Rate per patient day Routine Home Care days 1-60 $ 211.34 $
203.40
Routine Home Care days 60+ $ 167.00 $
160.74
Continuous Home Care $ 1,522.04 $
1,462.52
Full rate = 24 hours of care$60.94 = hourly rate for 2022$63.42 = hourly rate for 2023 Inpatient Respite Care $ 492.10 $ 473.75 General Inpatient Care $ 1,110.76 $ 1,068.28 Facility-based OnApril 18, 2022 , CMS issued a proposed rule for the fiscal year 2023 Long-Term Care Hospital Prospective Payment System. CMS proposed to update payments by a net 0.7%, which includes a 3.1% market basket update that would be offset by a statutorily mandated cut of 0.4% for productivity, a 1.7% for high-cost outlier payments and other adjustments. 29
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RESULTS OF OPERATIONS
Three months ended
Summary consolidated financial information
The following table summarizes our consolidated results of operations for the three months endedJune 30, 2022 and 2021 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise): Increase 2022 2021 (Decrease) Net service revenue$ 576,193 $ 545,907 $ 30,286 Cost of service revenue (excluding depreciation and amortization) 353,933 61.4 % 317,872 58.2 % 36,061 General and administrative expenses 196,390 34.1 167,061 30.6 29,329 Impairment of intangibles and other 842 0.1 760 0.1 82 Interest expense (6,407) (1.1) (143) - 6,264 Income tax expense 3,679 27.1 (1) 13,318 26.2 (1) (9,639) Net income attributable to noncontrolling interests 4,358 0.8 9,110 1.7 (4,752) Net income attributable to LHC Group, Inc.'s common stockholders$ 10,584 $ 37,643 $ (27,059)
(1) Effective tax rate as a percentage of income from continuing operations
attributable to our common stockholders, excluding the excess tax benefits
realized of
Revenue
The following table sets forth each of our segment's revenue growth or loss, admissions, census, episodes, patient days, and billable hours for the three months endedJune 30, 2022 and the related change from the same period in 2021 (amounts in thousands, except admissions, census, episode data, patient days and billable hours, which are actual amounts; revenue excludes implicit price concessions): 30
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The below data for the three months endedJune 30, 2022 was impacted by the COVID-19 pandemic. Organic Total Growth Growth Organic (1) (Loss) % Acquired (2) Total (Loss) % Home health services: Revenue$ 382,704 (3.4) %$ 15,309 $ 398,013 (0.9) % Revenue Medicare$ 222,588 (9.2)$ 9,940 $ 232,528 (6.4) Admissions 103,025 (4.3) 4,243 107,268 (1.7) Medicare Admissions 48,561 (10.5) 2,172 50,733 (7.7) Average Census 81,506 (3.5) 2,814 84,320 (1.4) Average Medicare Census 39,562 (11.2) 1,516 41,078 (9.0) Home Health Episodes 100,176 (3.7) 3,877 104,053 (1.3) Hospice services: Revenue$ 68,112 5.2$ 36,233 $ 104,345 62.4 Revenue Medicare$ 62,389 3.4$ 33,440 $ 95,829 59.8 Admissions 5,211 5.5 2,159 7,370 48.4 Medicare Admissions 4,655 4.4 1,858 6,513 45.5 Average Census 4,587 3.7 2,536 7,123 59.9 Average Medicare Census 4,255 2.4 2,309 6,564 57.3 Patient days 415,766 3.5 232,450 648,216 59.9 Home and community-based services: Revenue$ 45,692 (5.6) $ 451$ 46,143 (5.1) Billable hours 1,689,187 (9.7) 5,807 1,694,994 (9.8) Facility-based services: LTACHs Revenue$ 25,963 (15.3) $ -$ 25,963 (15.3) Patient days 17,550 (13.1) - 17,550 (13.1) Other facility-based services Revenue$ 1,261 (20.9)$ 4,164 $ 5,425 240.1 HCI: Revenue$ 5,459 (13.1) $ -$ 5,459 (13.1) Consolidated: Revenue$ 529,191 (2.3)$ 56,157 $ 585,348 5.9 (1) Organic - combination of same store, a location that has been in service with us for greater than 12 months, and de novo, an internally developed location that has been in service for 12 months or less. (2) Acquired - purchased location that has been in service with us 12 months or less. During the three months endedJune 30, 2022 , our home health segment, hospice segment, and our LTACH locations were impacted by the 1% sequestration payment adjustment for Medicare patient claims with dates of services betweenApril 1, 2022 throughJune 30, 2022 . During the three months endedJune 30, 2021 , our home health segment, hospice segment, and our LTACH locations received the benefit of the suspension of the 2% sequestration payment adjustment for Medicare claims. Our LTACHs received the benefit of the waiver of site-neutral payments for LTACH Medicare claims in 2022 and 2021. We continue to be impacted by the challenging labor dynamics of limited supply, higher than normal turnover, and elevated labor costs, which created capacity limitations in many of our agencies and led to a decline in organic revenue. More specifically, these challenges resulted in decreased home health census, decreased billable hours in our home and community-based locations, and decreased patient days in our LTACH locations. In addition, the return of the sequestration payment adjustment for Medicare patient claims resulted in a 1% Medicare revenue reduction in our home health, hospice, and LTACH locations. 31
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Cost of service revenue
The following table summarizes cost of service revenue (amounts in thousands,
except percentages, which are percentages of the segment's respective net
service revenue):
Three Months Ended June 30,
2022 2021
Home health services:
Salaries, wages and benefits $ 207,587 52.9 % $ 199,789 50.4 %
Transportation 10,258 2.6 9,230 2.3
Supplies and services 10,666 2.7 10,906 2.8
Total $ 228,511 58.2 % $ 219,925 55.5 %
Hospice services:
Salaries, wages and benefits $ 50,055 48.8 % $ 28,453 44.6 %
Transportation 3,291 3.2 1,967 3.1
Supplies and services 14,502 14.1 9,227 14.5
Total $ 67,848 66.1 % $ 39,647 62.2 %Home and community-based services:
Salaries, wages and benefits$ 31,058 69.5 %$ 33,925 70.1 % Transportation 456 1.0 414 0.9 Supplies and services 274 0.6 344 0.7 Total$ 31,788 71.1 %$ 34,683 71.7 % Facility-based services: Salaries, wages and benefits$ 17,940 58.4 %$ 14,887 48.0 % Transportation 68 0.2 7 - Supplies and services 4,822 15.7 5,566 17.9 Total$ 22,830 74.3 %$ 20,460 65.9 % HCI: Salaries, wages and benefits$ 2,903 54.1 %$ 3,108 50.7 % Transportation 48 0.9 65 1.1 Supplies and services 5 0.1 (16) (0.3) Total$ 2,956 55.1 %$ 3,157 51.5 % Consolidated: Salaries, wages and benefits$ 309,543 53.7 %$ 280,162 51.3 % Transportation 14,121 2.4 11,683 2.1 Supplies and services 30,269 5.3 26,027 4.8 Total$ 353,933 61.4 %$ 317,872 58.2 % During 2022, cost of service revenue in our home health, hospice, and facility-based segments were impacted by the continued labor market challenges. These challenges are, but not limited to, consistent utilization of nursing contract labor at a higher cost-per-visit rate, payments of sign-on and retention bonuses, increased clinician wages, and labor costs associated with acquisitions purchased during the latter half of 2021. Cost of service revenue in our home and community-based segment declined due to our lower patient volumes resulting in a decrease in billable hours and a decrease in total costs. In addition, we received the benefit of$0.8 million from various state Medicaid programs in response to COVID-19 relief funds to offset higher labor costs.
General and administrative expenses
The following table summarizes general and administrative expenses (amounts in
thousands, except percentages, which are percentages of the segment's respective
net service revenue):
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Three months ended June 30,
2022 2021
Home health services:
General and administrative $ 131,278 33.4 % $ 120,610 30.4 %
Depreciation and amortization 3,345 0.9 2,635 0.7
Total $ 134,623 34.3 % $ 123,245 31.1 %
Hospice services:
General and administrative $ 32,150 31.3 % $ 17,589 27.6 %
Depreciation and amortization 1,273 1.2 525 0.8
Total $ 33,423 32.5 % $ 18,114 28.4 %
Home and community-based services:
General and administrative $ 12,104 27.1 % $ 11,548 23.9 %
Depreciation and amortization 340 0.8 375 0.8
Total $ 12,444 27.9 % $ 11,923 24.7 %
Facility-based services:
General and administrative $ 11,307 36.8 % $ 10,119 32.6 %
Depreciation and amortization 904 2.9 787 2.5
Total $ 12,211 39.7 % $ 10,906 35.1 %
HCI:
General and administrative $ 3,445 64.2 % $ 2,653 43.3 %
Depreciation and amortization 244 4.5 220 3.6
Total $ 3,689 68.7 % $ 2,873 46.9 %
Consolidated:
General and administrative $ 190,284 33.0 % $ 162,519 29.8 %
Depreciation and amortization 6,106 1.1 4,542 0.8
Total $ 196,390 34.1 % $ 167,061 30.6 %
During 2022, consolidated general and administrative expenses increased as a
percentage of revenue from 30.6% to 34.1%. We incurred $6.9 million related to
acquisition expenses and expenses associated with the Merger. In addition, we
incurred higher administrative costs related to acquisitions purchased during
the latter half of 2021.
Six months ended
Summary consolidated financial information
The following table summarizes our consolidated results of operations for the six months endedJune 30, 2022 and 2021 (amounts in thousands, except percentages, which are percentages of consolidated net service revenue, unless indicated otherwise): 33
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Increase
2022 2021 (Decrease)
Net service revenue $ 1,147,688 $ 1,070,742 $ 76,946
Cost of service revenue (excluding
depreciation and amortization) 704,321 61.4 % 628,144 58.7 % 76,177
General and administrative expenses 380,749 33.2 330,310 30.8 50,439
Impairment of intangibles and other 2,071 0.2 937 0.1 1,134
Interest expense (10,578) (0.9) (406) - 10,172
Income tax expense 10,048 26.4 (1) 22,759 26.2 (1) (12,711)
Net income attributable to noncontrolling
interests 9,883 0.9 15,884 1.5 (6,001)
Net income attributable to LHC Group,
Inc.'s common stockholders $ 30,038 $ 72,302 $ (42,264) (1) Effective tax rate as a percentage of income from continuing operations
attributable to our common stockholders, excluding the excess tax benefits
realized of
Revenue
The following table sets forth each of our segment's revenue growth or loss, admissions, census, episodes, patient days, and billable hours for the six months endedJune 30, 2022 and the related change from the same period in 2021 (amounts in thousands, except admissions, census, episode data, patient days and billable hours, which are actual amounts; revenue excludes implicit price concessions): 34
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The below data for the six months endedJune 30, 2022 was impacted by the COVID-19 pandemic. Organic Total Growth Growth Organic (1) (Loss) % Acquired (2) Total (Loss) % Home health services: Revenue$ 761,626 (1.5) %$ 31,665 $ 793,291 1.3 % Revenue Medicare$ 445,783 (7.9)$ 21,072 $ 466,855 (4.8) Admissions 211,457 (1.4) 8,933 220,390 1.6 Medicare Admissions 98,658 (8.8) 4,669 103,327 (5.6) Average Census 81,932 (2.2) 2,901 84,833 0.1 Average Medicare Census 726 (29.9) 3 729 (31.1) Home Health Episodes 197,444 (3.5) 7,136 204,580 (1.2) Hospice services: Revenue$ 133,310 2.8$ 74,698 $ 208,008 61.8 Revenue Medicare$ 122,527 1.9$ 68,553 $ 191,080 60.1 Admissions 11,114 7.1 4,632 15,746 51.1 Medicare Admissions 9,847 5.6 4,045 13,892 48.6 Average Census 4,488 1.8 2,605 7,093 60.0 Average Medicare Census 4,163 0.7 2,374 6,537 57.5 Patient days - - - - - Home and community-based services: Revenue$ 90,371 (7.4)$ 1,210 $ 91,581 (6.6) Billable hours 3,337,242 (11.2) 31,444 3,368,686 (10.9) Facility-based services: LTACHs Revenue$ 54,896 (12.5) $ -$ 54,896 (12.5) Patient days 38,063 (8.0) - 38,063 (8.0) Other facility-based services Revenue$ 1,475 (57.8)$ 8,231 $ 9,706 177.6 HCI: Revenue$ 10,817 (11.5) $ -$ 10,817 (11.5) Consolidated: Revenue$ 1,052,495 (1.4)$ 115,804 $ 1,168,299 7.3 (1) Organic - combination of same store, a location that has been in service with us for greater than 12 months, and de novo, an internally developed location that has been in service for 12 months or less. (2) Acquired - purchased location that has been in service with us 12 months or less. During the six months endedJune 30, 2022 , our home health segment, hospice segment, and LTACH locations were impacted by the suspension of the sequestration payment adjustment throughMarch 31, 2022 and a 1% sequestration payment adjustment for Medicare patient claims with dates of services betweenApril 1, 2022 throughJune 30, 2022 . During the six months endedJune 30, 2021 , our home health segment, hospice segment, and LTACH locations received the benefit of the suspension of the 2% sequestration payment adjustment for Medicare claims. Our LTACHs received the benefit of the waiver of site-neutral payments for LTACH Medicare claims in 2022 and 2021. We continue to be impacted by the challenging labor dynamics of limited supply, higher than normal turnover, and elevated labor costs, which created capacity limitations in many of our agencies and led to a decline in organic revenue. More specifically, these challenges resulted in decreased home health census, decreased billable hours in our home and community-based locations, and decreased patient days in our LTACH locations. In addition, the return of the sequestration payment 35
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Table of Contents adjustment for Medicare patient claims resulted in a 1% Medicare revenue reduction in our home health, hospice, and LTACH locations.
Cost of service revenue
The following table summarizes cost of service revenue (amounts in thousands,
except percentages, which are percentages of the segment's respective net
service revenue):
Six months ended June 30,
2022 2021
Home health services:
Salaries, wages and benefits $ 417,030 53.4 % $ 392,026 50.9 %
Transportation 19,465 2.5 18,050 2.3
Supplies and services 20,223 2.6 22,222 2.9
Total $ 456,718 58.5 % $ 432,298 56.1 %
Hospice services:
Salaries, wages and benefits $ 99,289 48.5 % $ 56,465 44.6 %
Transportation 6,090 3.0 3,797 3.0
Supplies and services 28,534 14.0 17,955 14.2
Total $ 133,913 65.5 % $ 78,217 61.8 %Home and community-based services:
Salaries, wages and benefits$ 59,756 67.1 %$ 68,079 69.8 % Transportation 845 0.9 830 0.9 Supplies and services 142 0.2 646 0.7 Total$ 60,743 68.2 %$ 69,555 71.4 % Facility-based services: Salaries, wages and benefits$ 36,644 58.3 %$ 30,921 48.0 % Transportation 114 0.2 17 - Supplies and services 10,277 16.4 10,697 16.6 Total$ 47,035 74.9 %$ 41,635 64.6 % HCI: Salaries, wages and benefits$ 5,808 54.9 %$ 6,313 53.0 % Transportation 91 0.9 116 1.0 % Supplies and services 13 0.1 10 0.1 % Total$ 5,912 55.9 %$ 6,439 54.1 % Consolidated: Salaries, wages and benefits$ 618,527 53.9 % 553,804 51.7 % Transportation 26,605 2.3 22,810 2.1 Supplies and services 59,189 5.2 51,530 4.9 Total$ 704,321 61.4 %$ 628,144 58.7 % During 2022, cost of service revenue in our home health, hospice, and facility-based segments were impacted by the continued labor market challenges. These challenges are, but not limited to, consistent utilization of nursing contract labor at a higher cost-per-visit rate, payments of sign-on and retention bonuses, increased clinician wages, and labor costs associated with acquisitions purchased during the latter half of 2021. Cost of service revenue in our home and community-based segment declined due to our lower patient volumes resulting in a decrease in billable hours and a decrease in total costs. In addition, we received the benefit of$3.7 million from various state Medicaid programs in response to COVID-19 relief funds to offset higher labor costs.
General and administrative expenses
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The following table summarizes general and administrative expenses (amounts in
thousands, except percentages, which are percentages of the segment's respective
net service revenue):
Six months ended June 30,
2022 2021
Home health services:
General and administrative $ 255,113 32.7 % $ 237,071 30.8 %
Depreciation and amortization 6,317 0.8 5,571 0.7
Total $ 261,430 33.5 % $ 242,642 31.5 %
Hospice services:
General and administrative $ 62,261 30.4 % $ 35,164 27.8 %
Depreciation and amortization 2,507 1.2 1,077 0.9
Total $ 64,768 31.8 % $ 36,241 28.7 %
Home and community-based services:
General and administrative $ 23,245 26.1 % $ 22,681 23.3 %
Depreciation and amortization 617 0.7 771 0.8
Total $ 23,862 26.8 % $ 23,452 24.1 %
Facility-based services:
General and administrative $ 21,825 34.7 % $ 20,535 31.9 %
Depreciation and amortization 1,814 2.9 1,628 2.5
Total $ 23,639 37.6 % $ 22,163 34.4 %
HCI:
General and administrative $ 6,582 62.2 % $ 5,318 44.6 %
Depreciation and amortization 468 4.4 494 4.1
Total $ 7,050 66.6 % $ 5,812 48.7 %
Consolidated:
General and administrative $ 369,026 32.2 % $ 320,769 30.0 %
Depreciation and amortization 11,723 1.0 9,541 0.8
Total $ 380,749 33.2 % $ 330,310 30.8 %
During 2022, consolidated general and administrative expenses increased as a
percentage of revenue from 30.8% to 33.2%. We incurred $6.9 million related to
acquisition expenses and expenses associated with the Merger. In addition, we
incurred higher administrative costs related to acquisitions purchased during
the latter half of 2021.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our cash balance atJune 30, 2022 was$27.4 million and we have$235.9 million of available liquidity from cash and our revolving credit facility, net of$8.2 million liabilities associated with the CAAP. We have additional capacity in our revolving credit facility of$300.0 million per our accordion expansion. Based on our current plan of operations, including acquisitions, we believe this amount, when combined with expected cash flows from operations, will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures, and debt service obligations for at least the next 12 months. Our principal source of liquidity for operating activities is the collection of patient accounts receivable, most of which are collected from governmental and third-party commercial payors. We also have the ability to obtain additional liquidity, if necessary, through our credit facility, which provides for aggregate borrowings, including outstanding letters of credit.
The following table summarizes changes in cash (amounts in thousands):
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Three months ended June 30,
2022 2021
Net cash provided by (used in):
Operating activities $ (2,288) $ (11,824)
Investing activities (28,808) (24,687)
Financing activities 48,687 (137,950)
Change in cash $ 17,591 $ (174,461)
Cash at beginning of period 9,809
286,569
Cash at end of period $ 27,400 $ 112,108
We experienced a decline in net income during the six months ended June 30, 2022
as compared to the six months ended June 30, 2021 . The decline was related to
decreased census, increased labor costs, and increased general and
administrative costs related to the Merger and acquisitions purchased during the
latter part of 2021. This decrease was reflected in less cash disbursements for
income taxes. In addition, our accounts payables and accrued expenses increased
as we implemented a new enterprise system and utilized payment management
strategies incorporated within the new system. During the six months ended June
30, 2022 , CMS recouped $98.3 million of the CAAP, as compared to $65.0 million
during the six months ended June 30, 2021 .
In addition, we utilized our credit agreement for funding of the share
repurchase plan and recoupments of the CAAP during the six months ended June 30,
2022 . We returned $93.3 million of Provider Relief Funds back to the government
during the six months ended June 30, 2021 .
Indebtedness
OnAugust 3, 2021 , we entered into an Amended and Restated Senior Credit Facility (the "2021 Amended Credit Agreement"), which provided a senior, secured revolving line of credit commitment with a maximum principal borrowing limit of$800.0 million , which included an additional$500.0 million accordion expansion, and a letter of credit sub-limit equal to$75.0 million . OnDecember 31, 2021 , the aggregate commitment was increased to a maximum borrowing limit of$1.0 billion , with an additional$300.0 million accordion expansion. The expiration date of the 2021 Amended Credit Agreement isAugust 3, 2026 . Our obligations under the 2021 Amended Credit Agreement are secured by substantially all of our assets and our wholly-owned subsidiaries (subject to customary exclusions), which assets include our equity ownership of our wholly-owned subsidiaries and our equity ownership in joint venture entities. Our wholly-owned subsidiaries also guarantee the obligations of the Company under the 2021 Amended Credit Agreement. Revolving loans under the 2021 Amended Credit Agreement bear interest, as selected us, at either (i) the prevailing London Interbank Offered Rate ("LIBOR") (with interest periods of one, three or six months at our option) plus a spread of 1.25% to 2.0% based on our quarterly consolidated Leverage Ratio or (ii) the prevailing prime or base rate plus a spread of 0.25% to 1.00% based on our quarterly consolidated Leverage Ratio. Swing line loans bear interest at the Base Rate. We are limited to 15 Eurodollar borrowings outstanding at any time. We are required to pay a commitment fee for the unused commitments at rates ranging from 0.15% to 0.30% per annum depending upon our quarterly consolidated Leverage Ratio. The Base Rate as ofJune 30, 2022 was 5.75% and the LIBOR rate was 3.39%. As ofJune 30, 2022 , the effective interest rate on outstanding borrowings under the 2021 Amended Credit Agreement was 3.24%. OnMarch 5, 2021 , theICE Benchmark Administration , the administrator of LIBOR, announced its intention to cease the publication of LIBOR settings for 1-month, 3-month, 6-month, and 12-month LIBOR borrowings immediately onJune 30, 2023 .JPMorgan Chase Bank, N.A will transition our 2021 Amended Credit Agreement to an alternate rate to CME Term SOFR Reference Rate ("SOFR"), which is administered byCME Group Benchmark Administration Ltd ("CME"). Due to the differences observed between LIBOR rates and SOFR published rates,JPMorgan Chase Bank, N.A . will use a credit spread adjustment ("CSA") in order to minimize value transfer and leave the existing margin applicable to our 2021 Amended Credit Agreement. The CSA used byJPMorgan Chase Bank, N.A . is based on the average of the differences between LIBOR and SOFR over a 12-month period and will be added to SOFR. 38
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As ofJune 30, 2022 , we had$759.0 million drawn, letters of credit issued in the amount of$24.3 million , and$216.7 million of remaining borrowing capacity available under the 2021 Amended Credit Agreement. AtDecember 31, 2021 , we had$661.2 million drawn and letters of credit issued in the amount of$24.3 million under the 2021 Amended Credit Facility. Under the 2021 Amended Credit Agreement withJPMorgan Chase Bank, N.A ., a letter of credit fee shall be equal to the applicable Eurodollar rate on the average daily amount of the letter of credit exposure. The agent's standard up-front fee and other customary administrative charges will also be due upon issuance of the letter of credit along with a renewal fee on each anniversary date of such issuance while the letter of credit is outstanding. Borrowings accrue interest under the 2021 Amended Credit Agreement at either the Base Rate or the Eurodollar rate, and are subject to the applicable margins set forth below: Base Eurodollar Rate Commitment Leverage Ratio Margin Margin Fee Rate ?1.00:1.00 1.25 % 0.25 % 0.15 % >1.00:1.00 ? 2.00:1.00 1.50 % 0.50 % 0.20 % >2.00:1.00 ? 3.00:1.00 1.75 % 0.75 % 0.25 % >3.00:1.00 2.00 % 1.00 % 0.30 % Our 2021 Amended Credit Agreement contains customary affirmative, negative and financial covenants, which are subject to customary carve-outs, thresholds, and materiality qualifiers. The Credit Facility allows us to make certain restricted payments within certain parameters provided we maintain compliance with those financial ratios and covenants after giving effect to such restricted payments or, in the case of repurchasing shares of its stock, so long as such repurchases are within certain specified baskets. Our 2021 Amended Credit Agreement also contains customary events of default, which are subject to customary carve-outs, thresholds, and materiality qualifiers. These include bankruptcy and other insolvency events, cross-defaults to other debt agreements, a change in control involving us or any subsidiary guarantor, and the failure to comply with certain covenants.
At
Contingencies
For a discussion of contingencies, see Note 7 of the Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in these relationships.
Critical Accounting Policies
For a discussion of critical accounting policies, see Part II. Item 7 of our 2021 Form 10-K.
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